A decade ago in my essay The
Golden Sextant, I urged the adoption of a modernized gold
standard, both to bring the U.S. monetary system back into conformity
with the Constitution and to reform the international monetary
system to make it fair to all nations, small and large alike.
At that time, the collapse of the Soviet Union and the end of
the Cold War created circumstances conducive to worldwide monetary
reform, including restoring gold to a more central role in the
international payments system. However, U.S. monetary nationalism
and official hostility to gold dating back to the New Deal remained
an insurmountable bar.

Modern governments have proven incapable of managing even
bastardized versions of the gold standard, either domestically
or internationally. The Federal Reserve, created in 1913 to improve
domestic operation of the classical gold standard, destroyed
it in just 20 years, partly due to a misguided effort to help
the Bank of England remain on the gold exchange standard after
World War I. See A. Greenspan, "Gold and Economic Freedom"
(reprinted in A. Rand, Capitalism: The Unknown Ideal,available online at www.gold-eagle.com/greenspan041998.html).

Nor have international financial institutions proved any more
capable of maintaining official linkages to gold, particularly
in the face of opposition from major powers. The Bank for International
Settlements was created in part to facilitate operation of the
gold exchange standard, which soon thereafter met its demise.
The Bretton Woods system of fixed exchange rates linked to the
dollar and gold lasted less than 30 years, making the International
Monetary Fund ultimately no more successful than the BIS in carrying
out its original monetary charter. Contrary to the hopes and
expectations of many, far from representing an attempt to establish
a sound currency with some credible connection to gold, the euro
is proving little more than an effort to horn in on the fiat
dollar's reserve currency franchise.

At the same time, the euro has also undermined the argument
that issuing money is an essential element of national sovereignty.
France is France without the franc; Germany is Germany without
the mark; and soon Britain will be Britain without the pound.
Indeed, the euro nations are surrendering more of their monetary
sovereignty to the European Central Bank than they were ever
required to give up by adhering to the rules of the classical
gold standard.

Breach of Monetary Trust. Although the United States
continues to issue a national currency, it does not "coin
money" within the meaning of the Constitution, which grants
Congress the power: "To coin Money, regulate the Value thereof,
and of foreign Coin, and fix the Standard of Weights and Measures."
As described by the Supreme Court prior to the Civil War in United
States v. Marigold, 50 U.S. (9 How.) 261, 262-263 (1849),
the government's monetary powers rest on a different basis from
its powers over commerce (id. at 263):

They appertain rather to the execution of an important trust
invested by the constitution, and to the obligation to fulfill
that trust on the part of the government, namely, the trust
and duty of creating and maintaining a uniform and pure metallic
standard of value throughout the Union. The power of
coining money and of regulating its value was delegated to congress
by the constitution for the very purpose, as assigned by the
framers of that instrument, of creating and preserving the uniformity
and purity of such a standard of value ... . [Emphasis supplied.]

Long before his appointment to the Supreme Court, Justice
Holmes wrote a series of favorable comments on Justice Field's
dissent in the Legal Tender Cases, 79 U.S. (12 Wall.)
457, 649-651 (1870). 4 Am. Law Rev. 768 (1870); 7 Am.
Law Rev. 147 (1872); 1 Kent's Commentaries (12th ed.)
254 (1873). In the latter, Holmes set forth in detail what he
considered an "unanswerable" argument:

The question is not whether the Constitution prohibits the
exercise of the power [to declare paper a legal tender], but
whether it grants it; of course, a power as to which the Constitution
is silent, may be given by implication as a necessary or proper
means of carrying out other powers which are expressly conferred;
but it is hard to see how a limited power, which is expressly
given, and which does not come up to the desired height, can
be enlarged as an incident to some other express power; an express
grant seems to exclude implications; the power to "coin
money" means to strike off metallic medals (coin)
and to make those medals legal tender (money); if the
Constitution says expressly that Congress shall have power to
make metallic legal tender, how can it be taken to say by implication
that Congress shall have power to make paper legal tender?

Today the government does not coin money in the constitutional
sense because there is no official metallic standard of value.
The only metallic standards of value are the market prices for
gold and silver. In short, rather than perform their trust and
duty under the coinage clause, all three branches of the government
behave as if the Constitution contained an additional article:

De Facto Article VIII

Section 1. The banking Power of the United States shall be
vested in one National Bank, and such inferior banks as the Congress
may from time to time ordain and establish. The National Bank
shall have a Board of Governors consisting of a Chairman and
not less than four other Governors.

Section 2. The President shall have Power to nominate and
appoint, by and with the Advice and Consent of the Senate, the
Chairman and Governors of the National Bank, who shall hold their
Offices during good Behaviour, for Terms and at Compensation
set by the Congress.

Section 3. The National Bank shall maintain the Value of gold
and silver Coin at Rates established by the Congress.

Section 4. Whenever the Congress shall fail to exercise the
Power to coin Money and to regulate the Value thereof, the National
Bank shall have Power to emit Bills on the credit of the United
States, and the Congress shall have Power to make these Bills
a Tender in Payment of Debts. When exercising Power under this
Section, the National Bank may trade in the Markets for gold
and silver to affect the Value of its Bills.

Section 5. The National Bank shall not exercise Power under
Section 4 except upon majority vote of a Committee, which shall
be chaired by the Chairman, who shall have one Vote. The other
Members of the Committee, each of whom shall have one Vote, shall
be the other Governors of the National Bank and an equal number
of Persons chosen by such private banks and in such manner as
the Congress may by Law direct.

Section 6. The National Bank shall have Power, by and with
the Advice and Consent of the President, to enter into Treaties,
Alliances and other Arrangements with national banks of foreign
States.

Section 7. The judicial Power under Article III shall not
extend to reviewing acts of the National Bank, but whenever Bills
issued under Section 4 are Legal Tender, the Congress shall increase
the Compensation of Judges under Article III to adjust for Depreciation
in the Value of the Bills.

An Appeal without Appeal. Politicians in democracies
here and abroad need paper money to buy votes and to lend at
least a superficial veneer of credibility to their promises.
Economists think they can manage paper money to ensure prosperity
although they are never in agreement on the exact steps required.
Bankers require paper money in order to have a lender of last
resort to bail them out of their mistakes. Thus the dynamics
of a modern democracy conspire against sound money based on gold
or silver. It represents a discipline that none of these powerful
interests can stomach and against which all will combine and
conspire.

Lord Keynes once referred to the classical gold standard as
a "barbarous relic" (J. M. Keynes, Monetary Reform
(Harcourt, Brace, 1924), p. 187). For political rather than economic
reasons, he has proven correct. The gold standard is a relic
of long ago times when free governments put maintaining official
gold parities ahead of everything save national survival in time
of war.

Nor have the courts shown any inclination to derail the paper
money juggernaught. See Petition for Certiorari in Walter
W. Fischer v. City of Dover, N.H., et al.,Supreme
Court of the United States, No.91-221. In connection
with a similar petition in an earlier case (Howe v. United
States, 632 F. Supp. 700 (D. Mass. 1986), aff'd per curiam,
802 F.2d 440 (CA1 1986), cert. denied, 479 U.S. 1066 (1987)),
I asked Erwin N. Griswold, then a partner in a Washington, D.C.,
law firm, formerly U.S. Solicitor General, and before that longtime
dean of Harvard Law School, to consider filing a amicus brief
in my support. By letter to me dated October 29, 1986, he responded
in part:

Although I appreciate the skill and energy with which you
have proceeded in this matter, I do not feel that there is any
way that I can participate in this matter. Although your contentions
may have much economic or philosophic merit, it does not seem
to me that there is any prospect that you can get the Supreme
Court to consider them. The problem is, as I see it, essentially
a "political" one, dealing, as it does, with a field
into which the courts have been very reluctant to enter. I doubt
that there is really very much more to be said, on the legal
side, after the decision in the Gold Clause case, 294 U.S. 240
(1935).

Accepting Dean Griswold's views on the futility of seeking
judicial enforcement of the monetary provisions of the Constitution
is even less inviting than bowing to Lord Keynes on the impracticality
of the gold standard. As indicated in my last
commentary, Judge Lindsay's decision dismissing the gold
price fixing case carefully avoids placing any limits on the
government's ability to manipulate gold prices. Like those of
other federal district courts since 1971 involving the monetary
provisions of the Constitution, his decision is constructed to
facilitate what has become standard operating procedure for these
cases in the appellate courts: summary affirmance without hearing
or opinion by the court of appeals followed by denial of further
review in the Supreme Court.

Accordingly, unlike the district court case, an appeal is
unlikely to serve any educational or other useful purpose, and
thus will not be taken. Progress in the real world cannot be
built on a strategy of vain gestures. Nor, of course, can anything
be achieved by giving up. Targeting the Dred Scott decision
and foreshadowing more famous lines in his First Inaugural,
Abraham Lincoln declared in an 1859 speech: "The people
of these United States are the rightful masters of both congresses
and courts, not to overthrow the Constitution, but to overthrow
the men who pervert the Constitution." What is now required
on the money issue is a new, more practical approach, legal and
political. The time has come to restructure the terms of the
gold-as-money debate.

Right to the Use and Benefits of Specie. The monetary
provisions of the Constitution plainly contemplate that citizens
of the United States should be entitled as a matter of right
to the use and benefits of gold and silver as "specie"
or metallic money. As defined in The Century Dictionary and
Cyclopedia (Century Co., New York, 1912): "The use of
specie as a measure of price is based upon the intrinsic value
of the precious metals as commodities, which has diminished immensely
since ancient times, but is comparatively stable for long periods
under normal circumstances." See chart, "The real price
of gold, 1344-1999," at www.sharelynx.net/Charts/600yeargoldprice.gif.

Although the constitutionality of gold confiscation was not
directly at issue in the Gold Clause Cases, it was upheld
in dictum in Nortz v. United States, 294 U.S. 317,
328 (1934), and thus stands in sharp contradiction to the assertion
of this right. Accordingly, at least in the United States, the
right to use gold and silver as specie cannot be securely established
and protected without a constitutional amendment along the following
lines:

Neither the Congress nor any State shall make or enforce
any law which shall abridge, burden, or otherwise discriminate
against, the right of the people to the Use and Benefits of Specie,
whether Silver or Gold, which shall always be freely exchangeable
with other Moneys of any Kind.

By itself, the inability or refusal of the federal government
to exercise its coinage power so as to establish and preserve
a metallic standard of value does not prevent the use of gold
or silver as specie as long as these metals are allowed to compete
with national or other paper currencies on an equal footing.
What is required is a free and nondiscriminatory market for money.
Eliminate all sales and value added taxes on gold or silver.
Treat gold and silver equally with other national currencies
for purposes of state and federal income taxes. Allow investment
and money market funds to hold gold or silver bullion under the
same regulatory and tax framework as they hold dollars or foreign
currencies.

In other nations, the right to use gold and silver as specie
can be established by whatever means best suits their own particular
legal systems. The key point is that the right of all people
to hold their savings -- the tangible fruits of their labor --
in the historic monetary metals should be recognized and protected
as a fundamental human right separate and apart from whatever
particular national monetary system may be in place. At the international
level, although the IMF prohibits member nations from linking
their currencies to gold (see L. Parks, "The IMF Mandates
Currency Instability," available at www.fame.org),
there is nothing in the IMF's rules to prevent gold from circulating
as specie at free market rates in parallel with national currencies.

Modern technology and the Internet are already working in
favor of the increased use and availability of gold and silver
as specie. See, e.g., www.GoldMoney.com
and www.e-gold.com. Historically,
the growth of bank notes and paper currencies developed in significant
part due to their relative ease of use. Now many use plastic
credit and debit cards almost to the exclusion of paper money
for all but the smallest transactions. For unexplained reasons,
Citibank just forced on me a "platinum" MasterCard
in substitution for my prior "gold" card. From the
perspective of technological feasibility, my next "gold"
card could be a real gold card on an account denominated and
maintained in gold.

The transition to the euro has demonstrated not just that
national currencies may be replaced by a more universal medium,
but also that they can quite easily be used in practice in parallel
with another money. Even today, a visitor to France will find
many prices quoted in francs as well as euros, a practice common
in other euro area countries too. Memories of these dead national
currencies will fade in time, but the system of dual price quotations
could be adapted to pricing in euros and gold, thereby facilitating
the use of real gold cards, an alternative that might be especially
attractive to travelers from outside the euro area.

Fork in the Road to Ruin. Even if there were significant
political support for a return to the gold standard, there is
scant reason to believe that some new version of the gold standard
would prove any more durable than the gold exchange standard
or the Bretton Woods system, especially in the absence of any
realistic prospect for judicial enforcement. What is more, the
problem of setting a new official price would be extraordinarily
difficult in light of the artificial suppression of gold prices
over the past several years.

Rather than try to beat new life into the dead horses of the
gold standard and the Constitution's original monetary provisions,
my best suggestion at this point is to follow the lead of GATA
friend and supporter Hugo Salinas Price, who has long urged the
use of silver as a parallel money in his native Mexico and the
other nations of Latin America. See, e.g., "Basis
for the Formation of a Latin American Common Market in Century
21," at www.plata.com.mx/plata/plata/silver.htm;
also http://groups.yahoo.com/group/gata/message/605).
His approach applies equally to gold, which as the principal
monetary metal is even more suitable for use as parallel money
than silver.

Within this framework, the fight for sound money can be conducted
on multiple levels but without a frontal attack on established
monetary institutions. The principles of freedom are likely to
be achieved more easily by redirecting the debate from the power
of governments everywhere to establish and operate domestic monetary
systems to the right of people everywhere to use gold and silver
specie at their election in free and open competition with government
managed currencies. It is easy, both practically and politically,
to oppose a return to the gold standard; it is more difficult
to oppose a free market for gold. Allowing private alternatives
to often mismanaged government monopolies is an idea whose time
has come. It applies to money with as much as force as to post
offices and pensions.

In the developing world, as Hugo Salinas Price points out,
increased use of gold or silver specie in parallel with national
currencies offers even greater benefits. No longer would egregious
government mismanagement of a nation's currency necessarily destroy
virtually all the savings of its citizens. As in the gold standard
era, imprudent or corrupt governments could again go broke without
taking the vast majority of their citizens with them into penury,
as has happened most recently in Argentina despite its much heralded
currency board based on the dollar.

With respect to the official sector, while gold in vault storage
and gold receivables should be separately identified and publicly
reported, central banks should not be otherwise constrained from
using their gold as specie. The wholly artificial distinction
between monetary and non-monetary gold promulgated by the IMF
should be abandoned, and pacts like the Washington Agreement,
which cannot in any event be effectively monitored for compliance,
should be avoided.

Campaign for Free Gold. Obtaining a constitutional
amendment is daunting and difficult task. But this ultimate goal
need not be the only objective in a campaign to free gold and
silver for use as specie. More easily achievable intermediate
objectives include: (1) measures to promote greater transparency
in the gold and silver markets and to provide more complete,
reliable and timely information about them; and (2) creation
of better investment vehicles for gold and silver bullion, including
wider choices, easier access, and increased functionality. The
constitutional right will be easier to achieve on the wings of
widespread use.

A campaign to reestablish the use of gold and silver as specie
is an endeavor behind which all major groups with an interest
in these metals should be able to unite whatever their past differences
and while maintaining their separate identities. As discussed
in my last commentary, the gold price
fixing case performed a useful function in exposing the official
suppression of gold prices orchestrated by the central banks
over the past several years. But litigation, not to mention litigation
against the most powerful financial interests on the planet,
is not everyone's cup of tea, particularly when they have to
deal on a regular basis with some of these same entities.

For GATA, the campaign to free gold would be a quite natural
evolution, answering the question posed by D. McKay in "Quo
vadis Gata?" (May 23, 2002) at www.theminingweb.com.
Indeed, the GATA army could continue to build the "GATA"
franchise even while metamorphosing from the Gold Anti-Trust
Action Committee into the Gold and Truth Action Committee, a
name that would better describe its new mission. For advocates
of return to some form of gold standard, the campaign would be
a first but essential step on the way to their ultimate goal
should it at some future date become politically viable.

For the gold mining industry, the campaign would offer not
just an effective way to highlight and promote the highest and
best use of its product, but also the possibility of new business
opportunities in gold banking. At a recent industry conference
sponsored by the London Bullion Market Association, several participants
remarked on the need to create more and better opportunities
for investment in bullion itself, including through electronic
means. See T. Calandra, "Better on Weather than Gold's Price,"
www.CBS MarketWatch.com
(June 11, 2002), copy available at (http://groups.yahoo.com/group/gata/message/1144).

Winston Churchill once observed: "The farther backward
you can look, the farther forward you are likely to see."
As discussed in prior commentaries (see, e.g., Gold:
Can't Bank with It; Can't Bank without It!), gold banking
as presently conducted violates prudential rules developed over
several centuries of experience. When the pyramid of gold derivatives
collapses, as it inevitably must, existing players in gold banking
-- the central banks and most major bullion banks -- will be
deservedly discredited and gold banking ripe for substantial
restructuring, quite possibly outside the confines of existing
or traditional banking institutions. The gold mining industry
may well have the first opportunity since the ancient goldsmiths
to build an entirely new system of gold banking.

What is more important, the new system can be grounded in
the law of bailments rather than Carr v. Carr, 1 Mer.
543 (1811), and subsequent English cases holding that a bank
deposit is a loan to the bank. For a discussion of these cases,
which established the legal basis for fractional reserve banking,
see M. Rothbard, The Mystery of Banking (Richardson &
Snyder, 1983), pp. 93-95 & notes.

Just as war is too important to be left exclusively to generals,
banking with real money is too important to be left entirely
to bankers. The Constitution does neither. All participants in
the gold mining industry -- managements and investors, analysts
and miners -- should prepare to seize what could be an historic
opportunity to move public policy in the constitutional direction
of greater economic freedom and the right of all people everywhere
to the use and benefits of specie.

June 1, 2002.Money in
Court: Paving the Road to Ruin

[Note: Presentation on Thursday, May 23, 2002, to a
seminar at the Grocers Hall, London, organized by the Association
of Mining Analysts and sponsored by Durban Roodepoort Deep on
Prospects for Gold - A new era or more toil ahead?]

As indicated on the program, your chairman, Michael Coulson,
has asked me to address: "The gold anti-trust action 
the Boston court judgement and the road ahead." While I
will speak to the assigned topic, my own title for this talk
is Money in Court: Paving the Road to Ruin, and I will
speak from the perspective of the American Constitution.

Gladstone described it as "the most wonderful work ever
struck off at a given time by the brain and purpose of man."
W.E. Gladstone, "Kin Beyond Sea," The North American
Review (September-October 1878), p. 185. The Constitution
grants to Congress exclusive power "To coin Money [and]
regulate the Value thereof." The states are expressly forbidden
to "coin Money; emit Bills of Credit; [or] make any Thing
but gold and silver Coin a Tender in Payment of Debts."
These provisions have never been changed or amended.

Until the Civil War, no one would have disputed this statement
by Daniel Webster in a speech to the Senate on the Specie Circular
in 1836:

[T]here can be no legal tender in this country, under the
authority of this government or any other, but gold and silver.
... [This is] a constitutional principle, perfectly plain and
of the highest importance. ... To overthrow it would shake the
whole system.

The financial demands of the Civil War brought about the federal
government's first experiment with a paper legal tender, the
so-called "greenbacks." The issue of their constitutionality
did not reach the Supreme Court until after the war ended. In
1869, in the case of Hepburn v. Griswold, 75 U.S. (8 Wall.)
603, a closely divided Court held that the greenbacks were unconstitutional.
A year later, following a change in the composition of the Court,
this ruling was reversed in the Legal Tender Cases, 79
U.S. (12 Wall.) 457, by a 5 to 4 vote. The majority opinion stated
(at 553):

The legal tender acts do not attempt to make paper a standard
of value. We do not rest their validity upon the assertion that
their emission is coinage, or any regulation of the value of
money; nor do we assert that Congress may make anything which
has no value money. What we do assert is, the Congress has the
power to enact that the government's promises to pay money shall
be, for the time being, equivalent in value to the representative
of value determined by the coinage acts ... .

Fourteen years passed before the legal tender issue again
came before the high Court. In the 1884 case of Juilliard
v. Greenman, 110 U.S. 421, the question was whether Congress
could make paper a legal tender in time of peace as well as war.
With the cooling of Civil War passions and the effective reinstatement
of the gold standard, many expected that the ruling in the Legal
Tender Cases would be curtailed if not reversed, and that
the monetary principles of the Constitution would be reasserted.
When the decision in Juilliard disappointed these hopes,
it provoked considerable popular criticism.. TheNew
York Times wrote (as quoted in C. Warren, The Supreme
Court in United States History (Little Brown, 1924), vol.
3, pp. 378):

[It is a decision] which, while it must command obedience,
cannot command respect, a decision weak in itself and supported
by reasoning of the most defective character, inconsistent with
the previous decisions of the Court on like issues, and singularly,
almost ridiculously, inconsistent with the traditional interpretation
of the Constitution, with the spirit of that instrument and its
language.

Although the Legal Tender Cases and Juilliard
had little real effect on the monetary system of the era, they
set unfortunate precedents that were later used to support the
monetary measures of the New Deal. The greenbacks also caused
widespread use of gold clauses in bonds and other debt instruments,
which regularly provided for payment "in United States gold
coin of the present standard of value [then $20.67 per ounce]."

In 1933, Franklin Roosevelt nationalized the U.S. gold supply
and began the process of devaluing the dollar from $20.67 per
ounce. Under the Gold Reserve Act of 1934, Congress set a new
value for the dollar at $35 per ounce and invalidated all existing
obligations to pay in gold at the former parity. The constitutionality
of this measure was addressed by the Court in 1935 in the Gold
Clause Cases, 294 U.S. 240.

One of these cases, Perry v. United States, 294 U.S.
300, involved the gold clauses in government bonds, which presented
a special problem because the government was altering the terms
of its own obligations. In a 5 to 4 decision, the Court held
that Congress could, pursuant to its power to regulate the value
of money, invalidate gold clauses in private contracts but not
in government bonds. As the Court explained in Perry (at
350-351):

There is a clear distinction between the power of the Congress
to interdict the contracts of private parties ... and the power
of the Congress to alter or repudiate the substance of its own
engagements ... . By virtue of the power to borrow money "on
the credit of the United States" [emphasis in original],
the Congress is authorized to pledge that credit as an assurance
of payment as stipulated, -- as the highest assurance the Government
can give, its plighted faith. To say that the Congress may withdraw
or ignore that pledge, is to assume that the Constitution contemplates
a vain promise, a pledge having no other sanction than the pleasure
and convenience of the pledgor. This Court has given no sanction
to such a conception of the obligations of our Government.

But recognizing the general decline in prices during the Depression
era, the Court continued:

Plaintiff [Mr. Perry] has not shown, or attempted to show,
that in relation to buying power he has sustained any loss whatever.
... On the contrary, payment to the plaintiff of the amount which
he demands [i.e., $35 for each $20.67 previously owed] would
appear to constitute not a recoupment of loss in any proper sense
but an unjustified enrichment.

So, at the end of the day, the "unjustified enrichment"
or windfall profits arising from the devaluation did not go to
Mr. Perry and other holders of the government's gold bonds, but
to a new Exchange Stabilization Fund in the U.S. Treasury.

After World War II, although American citizens still could
not own gold, the gold parity of the dollar remained set at $35
per ounce under the Bretton Woods Agreements, and foreign central
banks were able to convert dollars at this rate until President
Nixon closed the gold window in 1971. The constitutionality of
this measure, which also violated the treaty obligations of the
United States, has never been addressed by the Supreme Court.
More generally, the Court has expressly refused on several occasions
since 1971 to consider the constitutionality of the post-Bretton
Woods system of unlimited paper money having no defined value.

Since 1974, Congress has made gold ownership by Americans
legal again, re-authorized the use of gold clauses in private
contracts, and provided that gold should trade in a free market
like other commodities. In 1978 Congress also approved the Second
Amendment to the Articles of the International Monetary Fund
under which member nations agree (Art. IV, s. 12(a)) to: "the
objective of avoiding the management of the price, or the establishment
of a fixed price, in the gold market." This amendment also
bars members from linking their currencies to gold.

Now, with the legal and constitutional stage set, let me turn
to the gold anti-trust action. The complaint
was filed in December 2000 in the federal district court for
Massachusetts. I was the plaintiff, asserting claims both as
a private shareholder in the Bank for International Settlements
and as a holder of gold preferred shares of Freeport McMoran
Copper & Gold. The defendants included the BIS, certain U.S.
Treasury and Federal Reserve officials, and several large, well-connected
international banks active in gold trading.

The complaint was posted on the Internet and received wide
circulation, including many repostings at different sites. Accordingly,
I have no idea how many times it was downloaded. What I do know
is that when the German translation of the complaint was posted
a year later, 1000 copies were downloaded within the first two
weeks. Also, over 20,000 copies of GATA's Gold Derivative
Banking Crisis (www.gata.org/test.html),
in many ways a precursor document to the complaint, were downloaded
from the GATA website prior to the filing of the complaint.

Although factually complex and procedurally complicated, the
case at heart asserted two straightforward propositions that
flow logically from gold's current legal and constitutional status
as a commodity rather than money.

Proposition One. The power to set gold prices rests
exclusively with Congress. Because Congress has mandated that
gold trade in a free market rather than serve as legal money
and the constitutional standard of value, statutes passed during
the gold standard era authorizing the U.S. Treasury and the Federal
Reserve to deal in gold cannot now be read to permit them to
intervene in the gold market for the purpose and with the intent
of affecting gold prices.

Proposition Two. As an ordinary commodity trading in
a free market, gold is covered by the Sherman Act's prohibition
on price fixing. Under U.S. antitrust law, price fixing is per
se illegal, meaning that it cannot be justified by any sort of
rule of reason analysis, and it is frequently prosecuted as a
criminal offense.

Factually, the case revolved around two intertwined events:
the freeze-out by the BIS of its private shareholders and price
fixing in the gold market, allegedly orchestrated through the
BIS by officials from the U.S. Treasury and Federal Reserve,
and carried out through the defendant bullion banks. The scenario
might loosely be described as a 1990's reprise of the London
gold pool, cobbled together in the 1960's in a futile effort
to save the Bretton Woods system.

With respect to the price fixing allegations, the complaint
included a bunch of statistics and information from official
and corporate reports. It also relied on the words of participating
officials themselves. In 1998, Alan Greenspan testified to Congress
that "central banks stand ready to lease gold in increasing
quantities should the price rise." In late 1999, after the
price of gold rallied sharply in response to the Washington Agreement,
Edward George, Governor of the Bank of England, was reliably
reported to have confided to a mining company executive:

We looked into the abyss if the gold price rose further. A
further rise would have taken down one or several trading houses,
which might have taken down all the rest in their wake. Therefore,
at any cost, the central banks had to quell the gold price, manage
it. It was very difficult to get the gold price under control
but we have now succeeded. The U.S. Fed was very active in getting
the gold price down. So was the U.K.

The complaint alleged that the motives for the price fixing
were to thwart gold's function as an indicator of U.S. inflation
and the health of the dollar, as well as to rescue the bullion
banks from risky short positions in physical bullion -- positions
built up through gold leasing from the central banks and apparently
confirmed by Mr. George's statement on the consequences of the
Washington Agreement.

After the complaint was filed, the GATA army went to work
searching for additional evidence. Last summer, in the course
of following up one of their leads, I came across former treasury
secretary Lawrence Summers' 1988 essay on "Gibson's Paradox
and the Gold Standard," which sheds further light on the
motives for the price fixing scheme.

Lord Keynes gave the name "Gibson's Paradox" to
the observed correlation under the gold standard between long
term interest rates and the price level. Restated for today's
world, Gibson's Paradox holds that real long term interest rates
should move inversely to gold prices, and that is what then Professor
Summers demonstrated, at least to his own satisfaction, for the
period from 1971 to 1985. At my request, Nick Laird at www.sharelynx.net
prepared this chart:

As you can see, the relationship described by Gibson's Paradox
held true from 1977 to 1995, but then began a period of severe
breakdown. According to Professor Summers, all prior breakdowns
over the two centuries covered by his research were attributable
to what he called "government pegging operations,"
such as occurred at the end of the Bretton Woods period. It is
not my purpose here to engage in an extended discussion of Gibson's
Paradox. For more on this subject, including a link to Mr. Summers'
original essay, see Gibson's
Paradox Revisited: Professor Summers Analyzes Gold Prices.

However, I cannot pass from Gibson's Paradox without noting
one further point. In today's first presentation, Peter Warburton
of Economic Perspectives put up a chart to show what he called
"The Fed's wrong turn" (copy of chart below courtesy
of Dr. Warburton, author of the highly regarded Debt &
Delusion (Penguin Books, 1999) and former chief economist
at Robert Fleming). As you can see, the wrong turn took place
in 1995, a date that is associated not only with the breakdown
in Gibson's Paradox, but also with several other key events relating
to the gold price fixing scheme.

[Note: "RoW" denotes "Rest of World,"
so that its net acquisition of financial assets ("NAFA")
equates to the balance of payments on current account with the
opposite sign. The complete flow of funds equation is Private
Sector NAFA + Public Sector NAFA + RoW NAFA = 0. Thus, when as
in 2000 the public sector and rest of world are both in strong
surplus, the private sector counterpart is in heavy deficit,
and thus a net borrower of funds from the financial system. As
described by Dr. Warburton: "The Fed's wrong turn was the
implicit or explicit decision to ignore an escalation of the
public and RoW surplus (= combined private sector deficit) and
not to raise interest rates/tighten credit conditions. Basically,
it was the Fed's responsibility to reactivate the private sector
saving reflex to help finance the corporate deficit and to restrain
the corporate sector from taking on too much debt."]

In November 2001, after extensive briefing, the case was heard
on the defendants' motions to dismiss. This is a procedure under
which defendants argue that even if all the facts alleged in
the complaint are taken as true, the plaintiff for one legal
reason or another is not entitled to any relief from the court.

On March 26, two months ago, the district judge issued a lengthy
published opinion (copy available at www.zealllc.com/files/Dismissal.pdf)
in which he stated the facts in some detail, including the Greenspan
and Eddie George quotes, but dismissed the case on two legal
grounds: first, that I lacked "antitrust standing"
to bring the price fixing claims; and second, that the Treasury
and Federal Reserve officials had qualified immunity from my
claims based on their lack of legal or constitutional authority
to manipulate gold prices.

A plaintiff in a price fixing case must not only meet the
statutory requirement of injury to his business or property caused
by the price fixing, but also a judicially imposed requirement
that his injury be sufficiently direct, making him an "appropriate"
plaintiff. Thus common shareholders in a company ordinarily lack
standing to complain of price fixing in the company's markets.
The company itself is deemed a more appropriate plaintiff because
it has suffered direct injury. Any injury to the shareholders
is simply derivative of that to the company.
On the other hand, where cash prices for copper were set by reference
to prices for copper futures on the COMEX or LME, purchasers
in the cash market were granted standing to sue for price fixing
in the futures markets. Similarly, farmers selling soybeans in
the cash market were given standing to complain of price fixing
in soybean futures on the CBOT.

My Freeport gold preferred shares pay quarterly dividends
equal to the cash value of a specific weight of gold based on
the average London PM fix over a preceding five day period. They
will be redeemed in 2006 for the cash value of one-tenth ounce
of gold calculated in the same way. Because these payments are
the exact equivalent of selling gold in the London market while
New York is open, I argued my case should be governed by the
copper and soybeans cases, not the common shareholder cases.
Close, but no cigar. The judge conceded that I had a point, but
ruled that a gold mining company would be a "more appropriate"
plaintiff.

What may sound like an open invitation to a gold mining company
to take up the cause is withdrawn by the judge's decision on
the immunity issue.

Here the judge ruled that the statutory provisions from the gold
standard era granting Treasury and Federal Reserve officials
authority to "deal in gold" were sufficiently elastic
to give these officials reasonable grounds for believing, perhaps
mistakenly, that they have authority to manipulate gold prices.
In other words, the power to deal might include the power to
deal from the bottom of the deck. Does it in this case? Do these
officials in fact have statutory or constitutional authority
to manipulate gold prices? The judge did not say. He just said
they might reasonably have thought that they did.

Ordinarily questions of legal or constitutional authority
are decided before the question of qualified immunity. Proceeding
in this fashion, as the Supreme Court itself has noted (Wilson
v. Layne, 526 U.S. 603, 609 (1999)), "promotes clarity
in the legal standards for official conduct, to the benefit of
both the officers and the general public." That is, first
decide whether the challenged conduct was illegal or constitutional.
Then, if it was, decide whether the defendant officials are nevertheless
entitled to qualified immunity because they had reasonable grounds
for believing in good faith that were acting in a legal and constitutional
manner even though they were not.

Accordingly, the person who brings the first case challenging
specific illegal or unconstitutional conduct may lose, but by
establishing its wrongfulness, he sets the necessary groundwork
for future successful cases based on the same conduct. However,
should a gold mining company bring a price fixing case like mine,
it will lose to the same qualified immunity defense. It is a
defense that cannot now be overcome except by a ruling in a prior
case that Treasury and Federal Reserve officials lack authority
to manipulate gold prices. Qualified immunity thus becomes absolute
immunity when courts refuse to determine the legality of the
underlying conduct as happened in my case.

Where does that leave us? What's ahead? Three observations:

Power of the Internet. First, although the case was
dismissed, the point was made. Even without pre-trial discovery
under court procedures, the GATA army has produced ample evidence.
It may never be presented in court, but much of it has been presented
on the Internet. Facts speak for themselves. The allegations
of the complaint are widely accepted (see, e.g., http://groups.yahoo.com/group/gata/message/1149)
because all the assembled evidence permits no other reasonable
conclusion. We may never know all the details, but we do know
to a virtual certainty that gold prices have been officially
suppressed in a major way since sometime beginning around 1995.
What's more, they have been rising steadily since the judge's
March 26 decision, hardly a vote of no confidence in the truth
of the basic allegations.

Power of Gold. Second, if gold were not permanent,
natural money, I would have had antitrust standing just like
the copper users and the soybean farmers did. What's more, if
gold were the barbarous monetary relic that many like to claim,
the G-10 central bankers would not have been so interested in
rigging the gold market. Nor would they have tried to have their
cake and eat it too by leasing huge amounts of gold for sale
into the market rather than selling it outright.

Power of the Constitution. Third, the American Constitution
is neither a technical legal document nor simply a declaration
of rights. It is a plan of government. But it is not self-executing.
Its power rests on the fidelity of the governed to the plan and
to the wisdom that it embodies. The proof of Gladstone's statement
lies in the results, which have been pretty good when the Constitution
is followed, as happens most of the time, but not so good on
the few occasions when it has been seriously violated.

The nation's greatest constitutional convulsion -- the battle
over slavery -- came in the one area where the plan could not
be perfected at the time of its adoption due to irreconcilable
sectional differences. More recently, the Vietnam experience
demonstrated the folly of sending an army of half a million men,
mostly draftees, to fight on the other side of the world without
obtaining at least the practical equivalent of what the Constitution
expressly requires: a declaration of war by Congress.

At its most fundamental level, the Constitution provides for
three branches of government -- legislative, executive, and judicial
-- not four. It does not confer a separate banking power -- and
certainly not the power to issue unlimited amounts of paper money
-- on an independent central bank, let alone one that is effectively
exempt from any serious judicial review. Yet in the real world,
that is what exists today.

The road ahead is the road we are on -- a road paved by the
courts and already taken too far. It is, and it has always been,
the royal road to ruin: the well-worn path which, as the framers
of the Constitution knew from both history and personal experience,
is traveled by all who chose government paper over gold or silver
as their standard of value.